Setting Outlet Numbers in a Franchise Agreement

When a business starts franchising, prospective franchisees may want to operate several outlets straight away. This can be an attractive proposition, but an agreement framed too broadly can create conflicting expectations: has the franchisee bought the rights to all those outlets, merely gained the opportunity to apply for more, or committed to opening them all? In franchising, clarity over outlet numbers helps business owners keep growth in line with both their franchisees’ capabilities and their own operational capacity.

1. Distinguish between outlet numbers, expansion rights and opening obligations

Indonesia’s Government Regulation No. 35 of 2024 on Franchising requires franchise agreements to specify, among other things, the number of outlets or business premises to be operated by the franchisee or sub-franchisee. Outlet numbers are therefore more than figures in a sales proposal: they must be clearly addressed in the agreement.

This requirement does not mean every franchisee must be granted several outlets. Business owners need to choose an arrangement that can realistically be delivered. In practice, there are three possible approaches:

• Single-outlet rights: the agreement grants the right to operate only one business premises. Any additional outlet requires a new written agreement.
• Agreed multi-outlet rights: the number of outlets is set at the outset, with details of the rights and obligations for each outlet.
• One outlet with scope for expansion: the initial right is limited to one outlet, while further outlets are subject to assessment and written approval.

These are contract design options, not official categories established by the regulation. Avoid blurring them with phrases such as “a package covering up to several outlets” without further explanation. “Up to” does not clarify whether additional outlets are an acquired right or merely a possibility.

2. Define what counts as one outlet

Before specifying the number, agree on the business unit being counted. An outlet might be a shop, kiosk or another type of premises suited to your business system. Problems arise when a franchisee adds a small sales point, a delivery-only kitchen or a collection point and treats it as part of an existing outlet.

Use a definition tailored to your business model, rather than a generic one copied from another contract. Explain whether a site counts as a separate outlet based on its operating location, production facilities, management team or sales activities. Also specify how temporary activities, such as exhibition stands and sales at events, will be treated.

Attach an outlet schedule to make the scope of the rights easy to check. For each outlet, record:

• its name or identification code;
• the permitted premises format;
• the status of the rights, for example already granted or still proposed;
• the document under which the rights are granted;
• the party responsible for managing it.

If a location has not yet been chosen, state this explicitly. Do not present a provisional address as an approved location. The schedule records the scope of the arrangement; it does not replace the licences or permits required for each business activity.

3. Link additional outlets to demonstrable readiness

For businesses that are new to franchising, granting rights in stages can help limit the strain of expansion. The first outlet provides a basis for assessing the franchisee’s ability to run the business before both parties agree to add more.

Set verifiable conditions for expansion. For example, the franchisee might need to identify a dedicated manager for the new outlet, provide working capital separate from the needs of existing outlets, and submit a plan for managing multiple sites. Avoid vague requirements such as “satisfactory performance” without explaining how performance will be assessed.

The franchisor’s readiness also needs to be tested. Can your team support additional openings without reducing the service provided to existing outlets? Do not grant rights to simultaneous openings unless you have the capacity to deliver them.

The approval process should be documented: the franchisee submits a plan, the person responsible reviews the evidence of readiness, and the authorised decision-maker communicates the decision and the reasons for it. Make clear whether meeting the conditions automatically grants additional rights or whether both parties must still reach an agreement.

For arrangements that grant rights in stages, also explain that a readiness assessment does not itself grant rights to a new outlet. Those rights take effect only once the documentation for the additional outlet has been agreed. This mechanism must be consistent with the rights promised in the original agreement.

4. Align the agreement with sales materials and administrative requirements

Review your proposals, package summaries, prospectus and draft agreement. A presentation should not promise multi-outlet rights while the contract grants only one outlet without explaining the difference.

Government Regulation No. 35 of 2024 also requires the franchise offering prospectus to be provided to prospective franchisees at least 14 calendar days before the agreement is signed. Use pre-signing discussions to ensure prospective franchisees understand the scope of the rights on offer. Distinguish between the number of outlets in the network disclosed in the prospectus and the number to which the prospective franchisee will be entitled under their contract.

When agreeing to additional outlets, decide whether to document them through an amendment to the existing agreement or a separate agreement. Review the implications for the agreement’s term, payments and administrative obligations with a legal adviser. Do not assume that one contract or one Franchise Registration Certificate (STPW) automatically covers all licensing requirements for additional premises.

Practical step: before offering a multi-outlet package, prepare a one-page summary answering three questions: how many outlets is the franchisee already entitled to operate, what conditions apply to additional outlets, and which document brings those additional rights into effect?